Inside the Fed: Monetary Policy and Its Management, Martin through Greenspan to Bernanke [Hardcover]

Stephen H. Axilrod (Author)

Book Description

Publication Date: February 6, 2009

"This book is truly from 'inside the Fed'...Axilrod's accounts of policymaking as seen from inside the Fed are interesting and informative." -- John H. Wood, EH.Net

Editorial Reviews

From Publishers Weekly

Axilrod, a longtime Federal Reserve System veteran, provides an insider's perspective on how the Fed has evolved over the past 50 years. Revealing the impact of personalities and their responses to political, social and bureaucratic situations, he explores such key topics such as money supply vs. interest rates, monetary base and reserve aggregates vs. money-market conditions, and increased emphasis on real-world variables rather than on monetary variables as indicators and guides for policy. The book is based mostly on anecdotal recollections of personal interactions with central bank leaders and others as they managed policy discussions and implementation. Despite the involvement of other influential parties, Axilrod's view is that chairmen took the lead in policy formation but had limited influence on the day-to-day operating targets. He also offers his thoughts on the future of the organization, noting that leaders will need to take a more direct account of international markets in making judgments about policy and its management. Informative and insightful, this view of the inner workings of the Fed will appeal to anyone with an interest in economics or curious about the organization's recent progression. (Mar.)
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Review

"An intimate account of the Fed's depressing decline in the Seventies and dramatic comeback in the Volcker years when the central bank triumphed over the biggest threat to the US economy since the Great Depression. Now that the old enemy, stagflation, is stirring once more, the lessons Stephen Axilrod draws from past battles couldn't be timelier." -- Sylvia Nasar, author of A Beautiful Mind

The ultimate Federal Reserve insider offers insights into the inner workings of the Fed over the past fifty years.

Stephen Axilrod is the ultimate Federal Reserve insider. He worked at the Fed's Board of Governors for over thirty years and after that in private markets and as a consultant on monetary policy. With Inside the Fed, he offers his unique perspective on the inner workings of the Federal Reserve System during the last fifty years -- writing about personalities as much as policy -- based on his knowledge and observations of every Fed chairman since 1951.Axilrod's discussion focuses on how the personalities of the various chairmen affected their capacity for leadership. He describes, for example, Arthur Burns's response to political pressure from the Nixon White House and Paul Volcker's radical shift to an anti-inflationary policy at the end of the 1970s -- a transition in which Axilrod himself played a crucial role. As for the Greenspan years, Axilrod points to the unintended effects of the Fed's newfound "garrulousness" (the plethora of announcements and hints about policy intentions) -- one of which was the Fed's loss of credibility in the aftermath of the chairman's 1996 comment about "irrational exuberance." And Axilrod incisively outlines the problems -- including the subprime mess -- inherited from Greenspan by the current chairman, Ben Bernanke. Great leadership in monetary policy, Axilrod says, is determined not by pure economic sophistication but by the ability to push through political and social barriers to achieve a paradigm shift in policy -- and by the courage and bureaucratic moxie to pull it off.

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Product Details

• Hardcover: 216 pages
• Publisher: The MIT Press (February 6, 2009)
• Language: English
• ISBN-10: 0262012499
• ISBN-13: 978-0262012492
• Product Dimensions: 9.2 x 6.4 x 0.8 inches
• Shipping Weight: 1 pounds (View shipping rates and policies)
• Average Customer Review: 3.8 out of 5 stars  See all reviews (4 customer reviews)
• Amazon Best Sellers Rank: #604,672 in Books (See Top 100 in Books)

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15 of 17 people found the following review helpful:

4.0 out of 5 stars An Insider's View of Monetary Policymaking, February 22, 2009

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Tidewater "Whaler" - See all my reviews

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This review is from: Inside the Fed: Monetary Policy and Its Management, Martin through Greenspan to Bernanke (Hardcover)

Steve Axilrod's book is a rare avis. Written as an insider on the playing field of Federal Reserve monetary policymaking from William McChesney Martin through Paul Volcker, when he was intimately involved in monetary analysis. Axilrod also opines on monetary policy matters subsequent to his departure conducted by Messrs. Greenspan and Bernanke. It is beautifully written, full of insider stuff, and always decent and polite--the latter characteristics being a hallmark (at least in the old days) of top Fed staff.

I served at the Fed at a high level during most of the Arthur Burns years, and can attest to the authenticity of Axilrod's observations for that time period. As a member of the Board Members' staffing responsible for other areas, I was not allowed to enter the inner sanctum where monetary policy was made. This I was assured by other staffers was a blessing, because FOMC meetings were notoriously boring. That's not to say that regular Board meetings were uproariously amusing, only that FOMC policy discussions were deemed worse.

Although it does not come through in Axilrod's discussion of monetary policymaking under Arthur Burns, there were higher-ups in the Economics Division who were tearing their hair over what Burns and the FOMC were doing in 1974-75. In one singular event, I received a Sunday morning phone call at home from a very high level economist asking me if I could intervene with the Chairman to get him to change the course of monetary policy! I guess the thought was that I was (a) trustworthy; (b) able to influence the notoriously cantankerous Dr. Burns; and (c) that Axilrod for whatever reasons was of no use. For better or worse, I was not in a position to intervene.

The results of Burns' monetary policy in that period, which was marked by the emergence of the OPEC cartel, were catastrophic. The nation entered a severe recession that certainly played a part in the fact that Gerald Ford was not elected President in 1976. While Axilrod doesn't say so in so many words, it appears that a principal contributing factor to the recession was the Fed's highly restrictive monetary policy, characterized by a steep plunge in M1 at a time when petroleum product prices were skyrocketing. (If you look carefully, you can see the path of M1 in the chart included as an appendix in the book.) This created a double-whammy for the economy, and it seems other people on Fed staff saw it coming but couldn't get the Chairman to alter course.

But, as Axilrod notes, the Fed's focus on the monetary aggregates was just beginning (and mainly forced by Chairman Wright Patman of the House Banking Committee) and it took a long time for the aggregates to become central to policymaking (that awaited Paul Volcker's arrival). In fact, as Chairman Burns testified repeatedly before Congress in those years, his preference was to assess a wide variety of economic indicia, and basically operate by the seat of the pants from one FOMC meeting to the next, without quite admitting it so bluntly to the congressional committees.

Today, as Axilrod notes, the monetary aggregates, long ago faded away as useful policy indicia, are replaced in the Bernanke era by--you guessed it--making it up as you go along.

This book may be inside baseball to a greater degree than any normal reader would care to follow, but for anyone interested in how a key part--monetary policymaking--of American government works, Steve Axilrod has provided an authoritative history that is unquestionably irreplaceable.

6 of 7 people found the following review helpful:

5.0 out of 5 stars Required reading for faculty, students and Washington appointees, April 7, 2009

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JIB (Connecticut) - See all my reviews

This review is from: Inside the Fed: Monetary Policy and Its Management, Martin through Greenspan to Bernanke (Hardcover)

Beautifully written, packed with insights you won't find anywhere else. Axilrod's unique experience as the consummate Fed insider shines a light on the human side of policymaking and leadership. He even breathes life into the arcane mechanics of monetary policy, far beyond what's available in any textbook yet easily understandable for a discerning reader. A gem!

1 of 2 people found the following review helpful:

5.0 out of 5 stars The Real Deal, January 1, 2010

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A Customer - See all my reviews

This review is from: Inside the Fed: Monetary Policy and Its Management, Martin through Greenspan to Bernanke (Kindle Edition)

Both insightful and captivating. Axilrod manages to convey the extent to which the effectiveness of various Fed chairmem and indeed the Fed itself depends the ability to understand the psychology of the moment both within policy making circles and the country at large and to act at precisely the right time. Too late or too early results in failure. Brings the deadly science to life and removes a lot of the mystery surrounding this most misunderstood institution.